Intermediate Trend is Confirmed Bearish

The market did not cooperate with the count I had posted yesterday and retraced almost all its gains from the previous session and with today's close we officially have an Intermediate Trend change to the bearish side. The last time we had an Int trend change was in August when the market had an 80 point correction and I think it is likely that we will see the 200 DMA tested on what is likely to be the LT Int W4 that I was originally looking for in November. How we get to that level remains to be seen but given the current environment, my guess is that it will be some form of Zig Zag as I really don't think the reasons for the correction are all that strong to begin with. The whole emerging market 'crisis" started with a misreading (yes a misreading as manufacturing continues to grow despite a below 50 reading) and now the thinking is if China slows down then it will drag the world down.. One thing that most media outlets fail to mention is that the Chinese economy has grown 600% in US dollar terms since 2000 and stands at $9 trillion+. If the Chinese economy did not slowdown its growth rate and adjust, the Chinese economy would be larger than the US and Western Europe or the G-7 put together by 2028. So the expectation for fast growth is outdated and economically naive for China, most people just don't know the numbers to begin with. Secondly, the whole PMI "contraction" situation is better explained here:

http://www.smh.com.au/business/comment-and-analysis/its-not-a-contraction-getting-it-right-on-china-data-20140130-31p7u.html

So as you can see, the sky is not exactly falling.. we just have people selling/taking profits.

I traded FXCM profitably (14/15) but got caught holding the bag with XIV, but I position traded it since support did not break and hopefully I'll get out of it early next week with a small loss or a small profit if lucky. Once I am out of XIV, I will stay on the sidelines or trade mostly short as the trend is flashing red.

Have a Great Weekend!

Short Term Trend = Bearish
Medium Term Trend = Bearish

Long Term Trend = Bullish

* Trends are not trade signals. Trends are posted for situational awareness only and does not take into account wave counts, technical or fundamental conditions of the market. While mechanically trading the posted trends is feasible, keep in mind that these are lagging indicators and as such are prone to whipsaws and I personally do not use nor recommend them to initiate or close positions in the market without taking into consideration other factors. 

Trend Average test?

The market bounced as I was expecting and it looks like it might have one more bullish leg (W5) left that might test the Trend Average before possibly coming back down again. The levels I am watching are 1807-1813, which is basically the most recent top (after hours cash equivalent) and the 50 Day Moving Average. On the support side, I am looking at 1782.92 as the level the market can not retrace into as that would eliminate the W5 possibility. If the market makes it to the resistance levels and can not overcome the 50 DMA, we will have a good a nice Head and Shoulder's set up so the next two sessions are very important.

I ended up selling XIV (13/14) in the morning but perhaps a bit too early as the market went higher but profit is profit and I am not complaining at all. By the EOD the price for XIV had plummeted back to below yesterday's buy price so I ended up buying back the shares again in after hours. I am also experimenting with short term wave trade set ups on some individual stocks and I bought some FXCM as a test so we'll see how that goes. Hopefully we get a good gap up tomorrow and I will close a good trading month.

Short Term Trend = Bearish
Medium Term Trend = Bullish

Long Term Trend = Bullish

* Trends are not trade signals. Trends are posted for situational awareness only and does not take into account wave counts, technical or fundamental conditions of the market. While mechanically trading the posted trends is feasible, keep in mind that these are lagging indicators and as such are prone to whipsaws and I personally do not use nor recommend them to initiate or close positions in the market without taking into consideration other factors. 

1768 Support

The market did a 180 overnight and sold off today. The last option mentioned, which was the micro ABC was the right count as the market broke out of the Ascending Triangle and put in the cash equivalent high in after hours of 1807 and then sold off overnight. The cash count doesn't really reflect well this C leg but I take the after hours levels into account as now we have a potential bounce from support to that level again. The market put in a lower low but it did not break 1768 and given the Zig Zag look to it, the market is probably working on a bounce to test the 50 DMA again. I ended closing my long position taken at the EOD yesterday (12/13) and I guess I should have sold when the market was hitting the AT target in after hours trading. But my greedy side took over and I wanted to juice the market a few more points which in retrospect was not worth it because it was just a few points shy of my selling target (50 DMA). So I lost what I made yesterday today but I'm still having a good month and I bought back XIV at EOD today assuming 1768 will hold and see a bounce first before further selling. After hours are going up substantially again and I could sell now and make a quick buck but that wouldn't be fun :) That plus the fact that I don't really buy the excuses for the sell off, which started as a weak China PMI reading to now an "emerging market crisis", not to say there won't be further downside but I don't think there will be panic selling like in 2011/2012.

Short Term Trend = Bearish
Medium Term Trend = Bullish

Long Term Trend = Bullish

* Trends are not trade signals. Trends are posted for situational awareness only and does not take into account wave counts, technical or fundamental conditions of the market. While mechanically trading the posted trends is feasible, keep in mind that these are lagging indicators and as such are prone to whipsaws and I personally do not use nor recommend them to initiate or close positions in the market without taking into consideration other factors. 

Ascending Triangle 1807 target

The market gapped up as I was expecting but it retraced a good portion of the gap and put it an Ascending Triangle by the end of day that targets 1807, which could also be interpreted as a nested 1-2. So it seems likely that the market will mount a challenge to the 50 DMA in the next couple of sessions per the count I posted. One scenario I forgot to add yesterday is a "micro" ABC, meaning the market is working on a C wave that targets the 1802-1808 area (Thanks Eddy for pointing it out), which is just a few points short of the 50 DMA at 1813. If the micro ABC is in play then we would see another bearish wave to a lower low for the month. Personally, I lean towards a test of the 50 DMA and the Trend Average which will probably fall under 1820 tomorrow.

I ended up making good money (40% of yesterday's profit) on my "bet" from yesterday but I didn't double it. I sold XIV (12/12) when the market found initial resistance at 1793  and bought SPXL(3X SP500) in the last few minutes of the session when the Ascending Triangle break out seemed imminent. I hope to take profit tomorrow and then I'll have to decide to buy back VXX if the market reaches the 50 DMA.

Short Term Trend = Bearish
Medium Term Trend = Bullish

Long Term Trend = Bullish

* Trends are not trade signals. Trends are posted for situational awareness only and does not take into account wave counts, technical or fundamental conditions of the market. While mechanically trading the posted trends is feasible, keep in mind that these are lagging indicators and as such are prone to whipsaws and I personally do not use nor recommend them to initiate or close positions in the market without taking into consideration other factors. 

50 DMA Challenge?

The market sold off a bit more today but found bottom at 1772, which basically forms the neckline for the potential Head and Shoulders I posted about on Friday.  So far the bounce looks like it might be headed towards the 50 DMA but we must see a W3 tomorrow or a C wave to challenge this very important trend at 1813. If we apply 1.618 to the coming bullish wave then we would get 1814 as a target assuming the 1781 W2/B low.  However, if this turns out to be a 5 count then the target will be 1825, which will be a test of the Trend Average. Another possibility is further downside tomorrow with today's high being a W4 but I lean towards the counter rally.

I executed my trading plan and bought XIV as the market got close to the 1768 target I had in mind. I closed the position at 1790 (11/11) with a very nice profit but then I decided to double down on my profits by getting back in towards the end of the session. So I will double what I made today if I am right on the W3/C or likely lose all my profits from today by setting the stop at today's low. I normally like to take some profits just to be safe but I guess I'm enjoying the adrenaline rush..lol. One thing I do know is that what started the selling was an excuse to sell not really a change in fundamentals. So should the market tank, specially Chinese shares, I will be buying more of them with some of the cash I've raised in the last year.. to me this is a no brainer.


Short Term Trend = Bearish
Medium Term Trend = Bullish

Long Term Trend = Bullish

* Trends are not trade signals. Trends are posted for situational awareness only and does not take into account wave counts, technical or fundamental conditions of the market. While mechanically trading the posted trends is feasible, keep in mind that these are lagging indicators and as such are prone to whipsaws and I personally do not use nor recommend them to initiate or close positions in the market without taking into consideration other factors. 

Today's Sell Off

 

The market followed through on its selling from yesterday and broke key support (50 DMA at 1812) so the bears are now in charge. I was expecting a correction but only after the 5 count was finished so I didn't think the sell off today was likely but it is what it is so we just have to position ourselves to profit from the coming waves.  There is the possibility the market is working on a Head and Shoulders formation and if that is the case we should see the market bottom close to 1768 and then bounce back to the Trend Average, so a good trade set up would be to wait for the market to get as close as possible to that level and then play the bounce. If the H&S pattern evolves perfectly then we're looking at 1680 as the downside target, which a bit below the 200 day moving average currently at 1701. Obviously, even if the market starts counter rallying on Monday it will have to overcome the Trend Average. Any failure to turn the trend back up will likely result in lower lows. Is hard to say if this is beginning of the LT Int W4 I have been looking for since November but so far it is looking like a good start so I will be ready for it. We have to keep in perspective as to why the markets are selling off and the reason so far is really a non issue IMO, as I said yesterday the main excuse was China's PMI but the Chinese market has actually been rallying not selling off. So once the correction is done we will see people remember why the market was rallying in the first place.

I ended buying XIV when the market hit 1800 and bounced but sold it for a small profit when the market failed to mount a meaningful rally. I will be buying XIV again if a neckline forms on the H&S and then hopefully VXX near the TA, I am currently 10/10 on these short term trades so it's a good start for the year. Now, I do have my ST long position invested in a China related ETF underwater so I will position trade that one until I come out of it in the green. Hopefully we'll see some more panic set in next week so we can have a clear pattern to trade.

Have a great weekend!

Short Term Trend = Bearish
Medium Term Trend = Bullish

Long Term Trend = Bullish

* Trends are not trade signals. Trends are posted for situational awareness only and does not take into account wave counts, technical or fundamental conditions of the market. While mechanically trading the posted trends is feasible, keep in mind that these are lagging indicators and as such are prone to whipsaws and I personally do not use nor recommend them to initiate or close positions in the market without taking into consideration other factors. 

Correction Completed?

The bearish wave I was looking for finally appeared today and it broke through the 1830-35 area I was looking at as support. However, since the wave is part of a double Zig Zag and a C wave, it still falls into a correction rather than the start of anything more meaningful. Also, this wave was about 1.6 of the A wave so technically there's nothing out of the ordinary. With that said, the Trend Average turned negative but I would only start entertaining bearish options if there is follow through selling that breaks the previous low of 1815 and specially if support at 1811-13 breaks. Fundamentally speaking, the reason for the bearish wave was the PMI in China which is usually weak this time of year so I think this was used more as an excuse to sell than anything else. If the Chinese stock market is of any indication, the SSEC fell less than half a percent after the PMI news (after rallying almost 2% the day before) and all loses were regained and some at the time of this post so obviously they don't care.

I ended up buying XIV near support today which just happened to coincide with the bottom and I sold at the end of 5 waves on the micro count. And If tomorrow there is a retrace of this initial bounce it will be a fairly easy long as all I need to do is put the stop a the low from today. I haven't had a losing trade (I'm 9/9) this year so far so I am hoping to keep it going until February :)

Short Term Trend = Bearish
Medium Term Trend = Bullish

Long Term Trend = Bullish

* Trends are not trade signals. Trends are posted for situational awareness only and does not take into account wave counts, technical or fundamental conditions of the market. While mechanically trading the posted trends is feasible, keep in mind that these are lagging indicators and as such are prone to whipsaws and I personally do not use nor recommend them to initiate or close positions in the market without taking into consideration other factors.